City advisers will earn 15m in fees as a result of the Cordiant demerger. SBC Warburg, which is both banker and broker to Cordiant, should be cock-a-hoop. But what of all the other interested parties?
Firstly, a few words of praise: Cordiant, in taking the radical step of abolishing itself, has ended a long period of uncertainty about the advertising group’s intentions. That in itself should be good for investor sentiment and staff morale in all of Cordiant’s operating companies.
But the relief will be qualified: the demerger proposals raise almost as many questions as they answer. Senior Cordiant executives talk of unlocking shareholder value. What they seem to mean by this is that Bates will do far better unhobbled from the Saatchi/Procter & Gamble connection. In other words, Bates will now be able to pursue new business in the ten per cent of the market where it was previously inhibited by potential client conflict.
This perspective has not been greeted with enthusiasm in the City. Surely the first and most immediate way to unlock shareholder value would be to axe the overheads of Cordiant itself? Yet many of the most expensive ones – chairman Charles Scott, chief executive Bob Seelert and director of investor relations Tim Jackson, to take but three – will decamp to cosy positions in the new regime. Other expensive ‘jobs for the boys’ seem likely to emerge as the two miniature bureaucracies atop the new Saatchi & Saatchi and Bates groups swell to replace the one dispensed with at Cordiant.
Moreover, there is widespread scepticism about the longer-term stability of the demerger programme. Saatchi, with its relatively strong position in the US and the invaluable protection of global P&G business, looks pretty immune to takeover. Bates, on the other hand, has neither of these advantages and yet offers some enticing prospects to a predator. If anything, it will be more vulnerable to takeover following the demerger.
Which, in turn, has led to some intense speculation about the future of Zenith. Under the new regime Zenith will be an unquoted company jointly-owned by Bates and Saatchi. Neither is obliged to use Zenith, yet presumably will do so because it is in their interests as joint owners. But how much more capital will either commit to Zenith’s incomplete global expansion? Even more interesting, what happens to Zenith if one of the networks is taken over? Its short-term future is guaranteed by a three-year contract with the two demerged networks. How enforceable this contract will be can only be guessed at.
No wonder Cordiant is seeking a global partner for Zenith before the demerger takes place in December.
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